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The Global Chip Shortage Explained

Vital for creating integrated circuits, known as microchips, for many different industries; almost every electronic digital device is powered by semiconductors containing silicon.

Cars use integrated circuits for functions such as assisted parking, digital displays and entertainment systems. The semiconductor chips are also crucial for everyday appliances. They enable the communication systems, computers and applications used in almost every industry to advance in technical terms.

The news of a global shortage of chips couldn’t have come at a worse time, as the economy struggles to recover after two years of the pandemic. The shortage has impacted the production of electronics in various industries.


Why is there a shortage of chips?

The pandemic is the main cause of the global chip shortage, as production all over the world slowed down, or stopped altogether, due to shutdowns; existing stock began to drain and insufficient new chips were manufactured to replenish it.

As more people were stuck at home trying to entertain themselves due to the lockdowns, there was also a boom in the demand for electronics. This led to tech giants increasing production to keep up with the demand and competing for a dwindling number of chips.

In addition, vehicle manufacturers underestimated the demand for cars and subsequently reduced production during 2020. When people began getting out and about again mid-year, there was a flurry of activity to cope with the demand, leading to chip stocks being further depleted.

There has also been a shortage of the silicon needed to manufacture chips and computers. This was because it was the same silicon being used in the mass production of vials for Covid-19 vaccines, which led to the cost of silicon increasing due to a market shortage.

The global supply chain was further affected by border closures and transport stoppages due to the lockdowns. Economists say the damage caused by the pandemic has been a disaster in many ways. Businesses will have to deal with the consequences for the foreseeable future, as the chip shortage continues due to demand still exceeding supply.


How has this affected the motor industry?

The impact of the global shortage of chips has been significant. Electronics production in various sectors has been unable to meet demand, with the worst hit including cars, graphics cards and video game consoles.

Automobile manufacturers are projected to lose millions of pounds in earnings this year due to the shortage of semiconductor chips. Last year, they lost potential sales of 9.6 million cars because they were unable to manufacture them, according to analysts at LMC Automotive. The worst-hit manufacturers were Ford, which failed to manufacture 1.26 million vehicles globally due to the shortages; the Volkswagen Group at 1.15 million vehicles; and General Motors at 1.09 million.

Serving as the nerve centre of all modern vehicles’ electronics systems; the semiconductor chips are used primarily for the brakes and power steering. CNBC reports auto manufacturers are “scrambling” to snap up any available chips, but there are very long lead times.


What’s the impact on gaming consoles?

The microchip shortage is threatening future growth in the gaming console market. The release of several new electronic gaming products has been delayed, reducing companies’ profits, and causing frustration for many players. Microchips hold vast amounts of information in consoles and carry out mathematical and logical operations.

After Microsoft launched its new Xbox Series X in December 2019 and Sony released the PS5 in November 2020, the gaming consoles market grew significantly in 2020 and 2021. Sales of the new generation consoles boomed. The strong demand for consoles was further boosted by people still spending more time at home due to new Covid variants emerging.

The chip shortage has caused Sony to struggle to hit its PS5 sales targets. This has held back the company’s financial success. It has also led to the latest consoles being sold second-hand on auction sites at vastly inflated prices, causing anger among gamers. Online sales of both the Microsoft Xbox Series X and the Sony PlayStation 5 have been selling at up to 50% higher than the recommended retail price.


When will the shortage end?

There is no firm expectation of when the global chip shortage will end. However, some industry insiders suggest it could be resolved by the end of 2022.

The shortage is being tackled urgently by Europe and the United States, as currently, a lot of manufacturers are dependent on Asia for their chips. The European Union has passed the European Chips Act to subsidise the development of chip plants. Industry chiefs say providing there are no fresh complications, such as a new Covid variant disrupting life again, supplies should start returning to “some kind of normality” by the end of this year.

While the circuits printed onto slim boards are small, semiconductor chips play a big part in our life. Without them, we wouldn’t have many of today’s tech devices that we take for granted.

Sellectronics’ rapid prototyping and new product introduction services can produce pre-production batches, or one-off PCB prototypes, ensuring the setup is fully functional before completing a full production run. This helps iron out potential design issues, while picking up any errors in the circuit layout to avoid large-scale costly PCB wastage.


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